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China likely to demand miners drop ore prices by 82%

China likely to demand miners drop ore prices by 82%

Shanghai: China, the world's largest iron ore consumer, may ask Rio Tinto Group and rivals to accept an 82 percent price cut for the raw material after steel prices plunged to 1994 levels, an industry official said. "Iron ore prices should keep pace with steel prices which have fallen to the 1994 level," Shan Shanghua, secretary in general of the China Iron and Steel Association, said today in a phone interview. "We are asking for a big drop in iron ore prices." China's demands would be more severe than the 50 percent price cut that Australia and New Zealand Banking Group Ltd. has forecast for producers Cia. Vale do Rio Doce, Rio Tinto and BHP Billiton Ltd. All Chinese steelmakers were unprofitable in October as exports and demand from carmakers and builders slumped, the country's association said.
Benchmark contract iron ore fines sold by Rio Tinto, the second-largest supplier, this year cost around $92.58 a metric ton, and it was sold at around $16.685 a ton in 1994, according to Bloomberg calculations. Pushing iron ore prices back to 1994 levels to pace the decline in steel prices in China would mean an 82 percent decline.
"Miners' profit should be pegged to the steelmakers," the association's Shan said. "Steel exports and exports of steel- made machines and other goods account for 25 percent of China's steel output. The exports are unlikely to recover next year."
An iron ore price cut in 2009 would be the first in seven years. Prices jumped as much as 97 percent for the year started April 1. Merrill Lynch & Co. said Dec. 5 that prices may drop 20 percent next year and BHP may have to cut output by 25 percent.
Vale, Rio and BHP account for three quarters of seaborne traded iron ore. [9/12/08]


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